Finance Minister Arun Jaitley on Saturday blamed inadequate oversight by regulators and auditors as well as sloppy bank management for the INR 11,400 -crore fraud at India's second-biggest state-owned lender, and said if needed law would be tightened to punish fraudsters.

Speaking for the second time this week on the scandal enveloping Punjab National Bank, Jaitley slammed lack of ethics in certain sections of businesses and said multiple layers of auditing system chose to either look the other way or did a casual job.

Without naming either the alleged kingpin of the fraud, billionaire jeweller Nirav Modi, or PNB, he said it is "worrisome" that not a single red flag was raised when the fraud was perpetuated. Also, worrisome is "top managements who were indifferent to what was going on or were unaware of what was going on," he said at The Economic Times Global Business Summit.

There were "at least multiple layers of auditing system which chose to either look the other way or do a casual job.

You had inadequate supervision," he said. "Therefore, I think who did what, will eventually find out in the course of investigation."

Nirav Modi, whose diamond creations have draped Hollywood stars such as Kate Winslet and Dakota Johnson, his uncle Mehul Choksi and firms linked to them are alleged to have acquired fraudulent letters of undertaking (LoUs) from one PNB branch in Mumbai between 2011 and 2017 to obtain loans from Indian banks overseas for which they were ineligible.

Investigative agencies have raided their properties and arrested bank employees and persons linked to his firms.

"Regulators have a very important function. Regulators ultimately decide the rules of the game and regulators have to have a third-eye which is to be perpetually be open," the finance minister said.

"But unfortunately in the Indian system, we politicians are accountable, the regulators are not."

Frauds call for tightening regulations where they are lacking, he said. "The law would be tightened further, if necessary, in order to find out where they (fraudsters) are and what is the extreme action that law permits against such delinquent persons."

Jaitley said Indian businesses have to realise that it has to develop a habit of doing ethical business. "Those who deviate from that cause must always remember that the consequences will not only be commercial and civil."

Stating that unethical practices in lender-borrower relationship where borrowed money is not intended to be returned should end, he said the initial experience of insolvency and bankruptcy code, where recoveries are made from serial defaulters by selling assets, has been reasonably transparent and objective.

"I think when I speak in terms of ethical practices I think it is a significant problem in India," he said, adding Indian businesses should also look inward rather just ask what the governments are doing.

On mounting NPAs or bad debts, he asked how much of them are due to business failure and how much because of diversions by companies. "Cases of wilful defaults are something which is much more than the business failure itself," he said.

The finance minister said periodic surfacing of bank frauds push to background the reforms and entire effort of making it easier to do business in India while the scars on the economy take front seat.

Earlier this week, Jaitley had that "the supervisory agencies" needed to "introspect as what are the additional mechanisms they have to put in place to ensure that stray cases don't become a pattern again".

"It is incumbent on us as a state ... to chase these people to the last possible conclusion to make sure the country is not cheated," he had said.